Tag Archive for Assembly Bill 436 (2011)

San Diego Unified School District: the Only Local Government in California Evading Labor Compliance Fees to the California Department of Industrial Relations

The Ziggurat Exterior

I requested public records from the State Allocation Board‘s Office of Public School Construction (part of the California Department of General Services) to find out which educational districts in California were slipping out of the state’s new requirement to pay fees to the State Public Works Enforcement Fund, which supports the Compliance Monitoring Unit of the California Department of Industrial Relations.

The Ziggurat Interior

School districts (K-12), community college districts, and other local governments pay these fees to support the agency’s monitoring and enforcement of contractors complying with laws related to state-mandated construction wage rates (so-called “prevailing wages”).

Personnel at the state’s obscure but powerful Office of Public School Construction were prompt and efficient in getting me the information, and I was able to obtain the records in person at the Department of General Services offices in the beautiful Ziggurat in West Sacramento.

Only one school district is avoiding the fees: the San Diego Unified School District (SDUSD). It submitted four applications for state grants to the State Allocation Board via the Office of Public School Construction to fund “New Construction (Overcrowding Relief Grant)” on four projects: The Language Academy (low bid $10 million), Euclid Elementary School (low bid $7 million), Zamorano Elementary School (low bid $8.4 million), and Encanto Elementary School (low bid $5.7 million). See the four applications here.

Administrative offices of the San Diego Unified School District.

In the funding applications for each of those projects, the San Diego Unified School District checked off a box in Question 17 (“Prevailing Wage Monitoring and Enforcement Costs”) indicating that the monitoring requirement to be used by the school district will be “Collective bargaining agreement, pursuant to Labor Code Section 1771.3(b)(3).”

This means that the San Diego Unified School District won’t need to pay fees to the state for labor law compliance activity on these projects because contractors working on them have to sign a Project Labor Agreement with unions. (See the special SDUSD “Project Stabilization Agreement” web page here for details.) In other words, the state is exempting the San Diego Unified School District from paying mandatory labor compliance fees because the school board requires contractors to sign a union agreement!

Under state law (Assembly Bill 436) and California Code of Regulations Title 8, Section 16452, the fee assessed by the Department of Industrial Relations cannot exceed one-quarter of one percent of the total amount of the total project construction costs. The State Allocation Board includes the costs of these fees in the funds it distributes to school districts.

The total cost of these four San Diego Unified School District projects is $31.1 million, meaning the school district was able to evade costs of $777,500 in fees to the California Department of Industrial Relations as a result of the school board requiring contractors to sign a Project Labor Agreement with unions.

Unions Have Promoted Complex Labor Compliance Schemes in California for Twenty Years

Since the early 1990s, construction trade unions have lobbied the California State Legislature to implement various schemes meant to supplement the California Division of Labor Standards Enforcement (headed by the Labor Commissioner) in its monitoring and enforcement of construction contractor compliance with California’s laws related to state-mandated construction wage rates (“prevailing wages”) on public works projects.

Basically, union leaders and lobbyists imposed and expanded complicated, convoluted, burdensome wage rate mandates on public works contractors for each trade in various geographical regions (based on the jurisdictions of unions as defined in collective bargaining agreements). Then they complained when the state bureaucracy could not actively scrutinize all of their non-union competitors for possible violations of those laws.

For example, as cited in the committee bill analyses for Senate Bill 588 (2001), which allowed union-affiliated labor-management cooperation committees to obtain addresses and (initially) names of workers on certified payroll records, unions argued that “Because DLSE has only 20 field investigators and 6 auditors in the public works unit, that agency cannot adequately enforce the law on more than 22,000 public works projects each year.”

Reflecting the political priorities of unions during the administrative of Governor Gray Davis (1999-2003), the University of California Labor Program – flush with taxpayer funding starting in 2000 – produced a report about the history and status of the state’s labor law enforcement agencies. Even while continually pushing for new labor laws, union officials and lobbyists called for more state funding for labor law enforcement, perhaps as part of the plot outlined in the guidebook first widely circulated in the early 2000s entitled Using the California Labor Laws Offensively: Organizing Through Enforcement of State Employment Laws.

Unions Exempted Their Construction Monopolies Under Project Labor Agreements from Labor Compliance Fees with Assembly Bill 436

The latest union-backed labor compliance scheme was enacted in 2011, after the California State Legislature gutted and amended Assembly Bill 436 on August 30, 2011 and turned it into a bill establishing new guidelines for local governments building projects using funding from four statewide bond measures. Here is a list of the four state bond measures covered by this law:

  1. The $13.05 billion Kindergarten-University Public Education Facilities Bond Act of 2002 (Proposition 47, approved by 59% of voters in November 2002).
  2. The $12.3 billion Kindergarten-University Public Education Facilities Bond Act of 2004 (Proposition 55, approved by 50.9% of voters in March 2004).
  3. The $3.34 billion Water Security, Clean Drinking Water, Coastal and Beach Protection Act of 2002 (Proposition 50, approved by 55% of voters in November 2002 – note, don’t confuse this proposition with the $2.6 billion Clean Water, Clean Air, Safe Neighborhood Parks, and Coastal Protection Act of 2002 – Proposition 40 – on the statewide ballot in March 2002).
  4. The $9.95 billion Safe, Reliable High-Speed Passenger Train Bond Act for the 21st Century (Proposition 1A, approved by 54% of voters in November 2008).

AB 436 requires school districts, community college districts, water districts, the California High Speed Rail Authority, and the now-disbanded San Diego Model School Development Agency to pay a fee to the California Department of Industrial Relations, in an amount “sufficient to support the department’s costs in ensuring compliance with and enforcing prevailing wage requirements” as well as “labor compliance enforcement” on projects funded by the four state bond measures listed above.

The bill included a couple of exceptions under which these local governments do not have to pay a fee to the state for labor law monitoring and enforcement. One exception applies to local governments that already established in-house labor compliance programs under old laws that the state enacted in 2002 (but subsequently repealed) – a technical matter.

But there was also an exception based on politics that earned the criticism of business associations and various newspaper editorial boards. Assembly Bill 436 was peppered with this provision for every kind of local government: “if it enters into a collective bargaining agreement that binds all of the contractors performing work on the project and that includes a mechanism for resolving disputes about the payment of wages.”

A “collective bargaining agreement that binds all of the contractors performing work on the project” is a Project Labor Agreement.

Assembly Bill 436 was authored by Assemblyman Jose Solorio (D-Anaheim) and supported by the State Building and Construction Trades Council of California.

A Project Labor Agreement Doesn’t Ensure Contractors Are Complying with Labor Laws

I’ve heard union officials say at local government meetings over the years that there would be no need for the government to monitor contractors for labor law compliance if the government required all of its contractors to sign Project Labor Agreements (PLAs) with unions. Allegedly, unions check the paperwork and certified payroll records of their signatory contractors to make sure those companies aren’t violating the law.

Associated Builders and Contractors – California Cooperation Committee (ABC-CCC) investigated contractor labor law compliance for projects at the City of Milpitas and the Los Angeles Unified School District on which contractors were required to sign Project Labor Agreements with unions. ABC-CCC found numerous violations and disproved this contention. In fact, the discovery suggested that having a Project Labor Agreement (ironically) encourages labor law violations because chances are lower than people will be snooping around looking for them.

Despite these cases, the California State Legislature passed AB 436 to ensure that school districts that require contractors to sign a Project Labor Agreement with unions are rewarded for reducing the number of bidders and participating subcontractors (i.e. cutting competition) and raising costs of behalf of construction unions.

Did the San Diego Unified School District Operate a Flawed Labor Compliance Program?

A study commissioned by the San Diego Unified School District and released by Rea & Parker Research in November 2011 about the performance of the district’s Project Labor Agreement reports “There has been an increase in reporting violations and deficiencies pertaining to labor compliance since the PSA was adopted.” Without evidence, the report goes on to contend that “the increase is due to increased attention to worker payroll and benefits under the PSA than before…” It also suggests that “It is known that PSA projects grant access to union representatives and that deficiencies may be due to increased attention to labor issues, and it may be that this increased attention may have resulting (sic) in increased protection of the wages and benefits of workers than may have existed prior to the PSA.”

Well, the unions will certainly cite this sentence as (unsubstantiated) “proof” that Project Labor Agreements provide sufficient monitoring and enforcement of contractor compliance with laws concerning state-mandated construction wage rates. But how did Rea & Parker isolate the Project Labor Agreement as a cause of the increase in discovered violations? There is at least one additional variable Rea & Parker Research should have considered: the operations of the twelve-year old San Diego Unified School District’s in-house labor compliance program.

The California Department of Industrial Relations has allowed the San Diego Unified School District to operate its own in-house labor compliance program under the strict criteria of California Labor Code 1771.5(b) since it first approved the program on September 14, 2000. When the school district sought permanent approval for its own labor compliance program a year later, it claimed that the program was “successfully operated since September 14, 2000” and provided documentation to the Department of Industrial Relations that “demonstrates SDUSD’s ability to monitor and enforce Public Works Prevailing Wage law consistent with CCR §16434 and Labor Code §1771.5.”

Was the San Diego Unified School District labor compliance program failing to fulfill its claims of successful operation, and if so, should the California Department of Industrial Relations retroactively revoke the program’s approval for the nine years before the school district implemented the Project Labor Agreement for the first project in the fall of 2009?

This is a serious matter that has implications for school district finances and for the paychecks of construction trade employees of many contractors that worked for the school district over the past twelve years. The standard project cost threshold for state-mandated construction wage rates is $1000. But local governments operating labor compliance programs approved under California Labor Code Section 1771.5 are qualified to set a higher project cost threshold of $25,000 for construction work and $15,000 for alteration, demolition, repair, or maintenance work.

For example, according to this report, in 2009-10 the San Diego Unified School District was able to exempt 114 contracts worth a total of $11,583,770.80 from state-mandated construction wage rates. In 2010-11, the San Diego Unified School District was able to exempt 258 contracts worth $61,822,251.08 from state-mandated construction wage rates, as reported here.

I expect there will be much more extensive research into the labor compliance program at San Diego Unified School District, now that the school board has placed a $2.8 billion bond measure on the November 6, 2012 ballot and passed a resolution to lock that taxpayer-funded work under a union Project Labor Agreement.

Barreling Down the Tracks: Project Labor Agreement for California’s High-Speed Rail – the Biggest, Costliest Union Construction Monopoly in History

Background on Contracts for Construction of the First Section of the California High-Speed Rail, as Based on the Bill Approved by the State Senate Today (July 6, 2012)

This afternoon (July 6, 2012), the California State Senate barely passed a budget trailer bill (Senate Bill 1029) that authorizes $5.85 billion (actually, $5,849,752,000.00) to acquire land and build the “initial operating segment” of the California High-Speed Rail. According to the bill, the project will be reviewed and overseen by the (obscure) State Public Works Board.

In December 2012, the California High-Speed Rail Authority will award several contracts for this first segment through an alternative bidding procedure called design-build. Five entities that are conglomerates of major engineering and heavy construction infrastructure corporations have qualified to bid under this procedure. (This is the Big Time, although there is supposed to be a goal to have 30 percent of the work go to small businesses.)

Instead of awarding contracts to design the project and then awarding contracts to the lowest responsible bidder to build it, the California High-Speed Rail Authority is authorized to award contracts to qualified corporate entities that combine project design AND construction work. The California High-Speed Rail Authority will select the design-build entities using a somewhat subjective list of “best value criteria” that could result in design-build entities winning contracts without being the lowest price. The State Public Works Board and the California Department of Finance will approve the criteria to aware the design-build contract.

As directed by Assembly Bill 1029, the California High-Speed Rail Authority is now required to issue some reports related to construction:

1. By October 1, 2012, prior to awarding a contract to start construction of the first segment of the California High-Speed Rail, and prior to advertising additional contracts to be awarded in September 2013 and October 2013, the California High-Speed Rail Authority will provide a comprehensive staff management report that includes a list of “proposed steps and procedures that will be employed to ensure adequate oversight and management of contractors involved in the construction contracts funded in this act.” That same report will list “procedures to detect and prevent contract splitting.” The California High-Speed Rail Authority will also need to submit a report with the same content requirements before additional contracts are awarded in March 2017.

3. On or before March 1 and November 15 of each year, the California High-Speed Rail Authority will provide a Project Update Report approved by the Secretary of Business, Transportation and Housing to the budget committees and the appropriate policy committees of the Assembly and Senate on the development and implementation of the California High-Speed Rail.

4. On or before June 30, 2013, the California High-Speed Rail Authority will prepare and submit a report approved by the Secretary of Business, Transportation and Housing that provides an analysis of the net impact of the California High-Speed Rail program on the state’s greenhouse gas emissions. The report shall be submitted to the Assembly and Senate budget committees and transportation committees.

My observations about these provisions in Senate Bill 1029:

1. While it’s unclear how it will be implemented, it’s quite likely there will be a requirement for the design-build entities and their subcontractors to sign a Project Labor Agreement with unions for some or all of the construction work. I provided extensive background information about this Project Labor Agreement threat in my highly-read January 12, 2012 article in www.TheTruthaboutPLAs.com entitled California’s Top Construction Union Officials Love the State’s $100 Billion High-Speed Rail Project.

The eight-member Board of Directors of the California High-Speed Rail Authority includes Bob Balgenorth, head of the State Building and Construction Trades Council of California, and Russ Burns, head of the International Union of Operating Engineers Local No. 3. The Senate Rules Committee appointed Balgenorth, and former Assembly Speaker Karen Bass appointed Burns.

Balgenorth has spoken repeatedly and publicly in support of the California High-Speed Rail even as just about everyone with common sense has mocked the costly, beleaguered project. Surely someone will reward Balgenorth and Burns for their efforts with a requirement for contractors to sign a Project Labor Agreement with unions to work on construction of the California High-Speed Rail. Of particular benefit to the unions, a Project Labor Agreement will kill off what would have been fierce competition from non-union contractors to perform electrical work and build the stations.

2. According to its web site, the State Public Works Board (SPWB) “was created by the Legislature to oversee the fiscal matters associated with construction of projects for state agencies, and to select and acquire real property for state facilities and programs. The SPWB is also the issuer of lease-revenue bonds, which is a form of long term financing that is used to pay for capital projects.” Its five members are officials from the Department of Finance, the Department of General Services, the Department of Transportation, the State Treasurer’s Office, and the State Controller’s Office. Amazingly, there isn’t a representative of organized labor sitting in on this board.

3. According to the May 12, 2012 minutes of the State Public Works Board, the High Speed Rail Authority “anticipates acquiring 1,100 properties from Madera County to Bakersfield County over the next two years as part of the high speed train system.” Perhaps this explains why the California Construction Industry Labor-Management Cooperative Trust and its precedessor (the State Building and Construction Trades Council of California Labor-Management Cooperation Trust) made two huge campaign contributions ($1,000,000 and $250,000) to committees opposing statewide ballot measures to restrict government power to acquire property through eminent domain. (I’ll write more about this issue in a later post – it deserves its own analysis.)

4. It would seem that the report requirement in Senate Bill 1029 to explain oversight and management of the contractors on the California High-Speed Rail project would be fulfilled with implementation of the labor compliance requirements now outlined in California Labor Code Section 1771. This is language enacted in 2011 through union-backed Assembly Bill 436, a bill that also repealed language of California Labor Code 1771.9, which was enacted in 2003 by union-backed Assembly Bill 1506. That original language applied specifically to contractor labor law compliance for the California High-Speed Rail project. Note that the new 2011 law (Assembly Bill 436) allows a government entity to exempt itself from labor compliance requirements if “the awarding body has entered into a collective bargaining agreement that binds all of the contractors performing work on the project and that includes a mechanism for resolving disputes about the payment of wages.” (This is the definition of a Project Labor Agreement.)

5. What is “contract splitting,” and why does Senate Bill 1029 require the California High-Speed Rail Authority to report on its efforts to prevent it? These are interesting questions. Obviously someone somewhere is worried about something!

California Public Contract Code Section 20915 states that “It shall be unlawful to employ any means to evade the provisions of this article requiring contracts to be awarded after advertising and competitive bidding, including the splitting of projects into smaller work orders, the amendment of existing contracts, or the approval of a subcontract or subcontracts let under existing contracts. Every person who willfully violates this section shall be guilty of a misdemeanor.”

6. Senate Bill 1029 requires the California High-Speed Rail Authority to provide “an analysis of the net impact of the high-speed rail program on the state’s greenhouse gas emissions.” Realize that the construction of the California High-Speed Rail will result in significant greenhouse gas emissions from the diesel equipment used to build it. The Teamsters union was so “concerned” about greenhouse gas emissions in the Central Valley area where the first segment will be built that it filed a lawsuit in 2011 challenging the construction of a distribution facility in Visalia (where truck drivers would not necessarily be unionized).

In addition, the draft Environmental Impact Report for this project indicates that the California High-Speed Rail program may use diesel-powered switch locomotives associated with maintenance-of-way activities. See California High-Speed Train Project EIR/EIS – Fresno to Bakersfield Section – 3.3 Air Quality and Global Climate Change. (How could this be? I thought this High-Speed Rail was going to save the planet!)

The home page for California High-Speed Rail declares that “California Is Thinking Big Again.” I’ve only scratched the surface of a few of many issues involving this project, and I’m thinking California Is in Big Trouble if this project continues.